Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

Federal Income Taxes

July 13, 2009

If your business is taxed on your 1040, your taxes are paid the same way you pay your personal taxes. If your business is part time, you may be able to pay all of your business tax just through withholding on your regular job. As your business grows, you may find yourself needing to make quarterly "estimated tax payments."

The tax law provides three primary ways for individuals to avoid estimated tax penalties through a combination of withholding and estimated tax payments (withholding payments are normally treated as evenly made through the year):



•	You can pay 90 percent of your current liability; 

•	You can pay 100% of your prior year liability 

        (110% if your adjusted gross income for the prior 

        year exceeded $150,000; or

•	You can adjust your payments as your income 

        fluctuates during the year.

You can switch among your methods for the year. For example, if you have a bad first quarter, you can pay your first quarter payment based on the first quarter results. If you go gangbusters the rest of the year, you can switch to paying based on your prior year liability. You can find the details for this in IRS Publication 505.

Corporations have slightly different estimated tax payment rules.

Next: The wonderful nightmare of state taxes

While the Tax Update takes its summer vacation, we are serializing my chapter in "How Business Gets Done: Words of Wisdom by Central Iowa Experts." You can buy your own copy at Lulu.com by clicking on the link.